Employing family members
Over 74 per cent of companies in Northern Ireland are classed as 'family run' and family run businesses in Northern Ireland employ around 52,000 people.
Many businesses employ family members but it is important to recognise that there are pros and cons to doing so. This guide outlines what to consider before employing family members, employing your partner and employing young family members. Other issues to consider are family employees and health and safety and family employees and tax requirements.
You should note that a family member and/or relative has to be hired to do real work at a commercial rate that is in proportion with their role. HM Revenue & Customs (HMRC) may well question in detail any very high payments for simple work. In addition, HMRC may ask for payment evidence to any family member, so it is essential that full records of all payments made are kept.
This guide also looks at how you can avoid common pitfalls helping you to minimise risks of employing family members and preventing communication breakdowns with family employees.
What to consider before employing family members
There are a few things to consider before deciding to employ a member of your family, including:
- Are they suitable for the post? Do they have the skills and competencies required? Don't create jobs exclusively for family members, ie jobs that would not otherwise exist.
- Do they want the job?
- Do they have relevant previous experience outside the business? What useful skills will they bring to the role?
- Are they willing to earn the respect of their colleagues rather than just expecting it because of family connections? Can they show equal respect for non-family colleagues?
- Can you be objective when promoting staff and only promote the best person for the job whether they are a relative or not?
- Can you put business objectives above family politics?
- Will you be able to apply the same pay policy, and disciplinary and appraisal procedures to both family and non-family workers?
Beware of indirectly discriminating against non-family members. See how to prevent discrimination and value diversity.
Your employment policies must be fairly applied eg you might consider an open competition for posts to ensure you choose the best person for the job if the family member would not be the best candidate. You should consider safe proofing the selection process as far as possible to minimise risks of discrimination claims ie select the interview panel carefully.
Minimising risks of employing family members
There can be risks to a business if it employs family members. These include:
- non-family members feeling alienated or excluded
- failure to recruit and retain experienced outsiders who could contribute effectively to the business' plans
- the failure of business plans if senior management do not possess the right skills and experience
- claims of discrimination against non-family members - see how to prevent discrimination and value diversity
- succession planning not being adequately managed if non-family members or interests are excluded or inappropriate family members or interests are automatically included - see succession planning and business transfer
- wasting money by paying a family member to do a job they are not suitable for and/or by giving them an undeserved promotion or pay rises - see staff pay and benefits for family members
- domestic issues being brought into the workplace, preventing effective communication on business matters
- bullying or harassment of other staff by family members - see preventing bullying and harassment
Minimising risks when employing family members
To avoid the employment of family members creating problems in the workplace, you should:
- apply any appraisal system or other company policies and procedures equally to all staff - see managing staff performance
- have senior positions held by a mixture of both family and non-family members
- make sure that you do not give family members preferential treatment in relation to, for example, promotion or pay, as this may give rise to potential discrimination complaints
Remember that if you don't require family members to bring outside experience to your business, you cannot reasonably expect non-family members to do so.
Preventing communication breakdowns with family employees
If you employ a family member it is sometimes easy to ignore the importance of open and regular communication. A typical response to a difficult scenario is to avoid dealing with it rather than confront a situation or an issue early on.
This creates a breeding ground for bad feeling and resentment that could destabilise the business' operations and put your family relations at risk. It can also create an unpleasant working environment for non-family staff and could encourage them to take sides.
Best practice in communication
You may find it useful to assess whether or not your management style encourages a culture of listening and consensus.
You might achieve this by:
- finding out family employees' different goals and needs, and then seeing if you can coordinate them - you could ask an independent party to do this
- creating opportunities for views and concerns to be heard
- addressing those views and concerns
- seeking consensus for decisions, whenever practical
- encouraging an open, sharing atmosphere rather than a blame culture
See further guidance on engaging with staff.
Employing your partner
If you employ your partner, ie your spouse, civil partner or (co-habiting) partner, you should decide in what type of role you want to employ them, ie will it be a managerial or non-managerial position?
As they are an employee, you must ensure that you deduct income tax and National Insurance contributions from their pay through the PAYE (Pay As You Earn) system.
It's a good idea to:
- get advice on their terms and conditions of employment - see the written statement
- arrange for your partner to make payments into a pension scheme
- get advice on ways of minimising your own tax bill and/or that of the business while complying with HM Revenue & Customs (HMRC) rules
For advice on employing your partner, you could contact a tax specialist - see choose and work with an accountant.
Employing young family members
It's common for businesses to employ young family members for part-time work or during school holidays.
Employment rights for young family members
Young family members have most of the employment protection rights as other young people and children.
For example, you can't employ young people:
- for most businesses, if they are under 13 years of age, except in certain professions, eg in performance, modelling or in sporting activities
- in any industrial undertaking, for example on a building site or in a factory
- in a pub
- in a betting shop
- during school hours or continuously during the year
There are also laws on working hours, work breaks and the type of work for those under school-leaving age and those aged 16 and 17 years. See employing children and young people.
You must give employees aged 16 and 17, who did not reach a certain standard of education or training, the right to reasonable time off with pay to study or train for a qualification that will help them reach that standard.
The national minimum wage (NMW) for young family members
You do not have to pay the NMW to workers in the family business, provided they are members of your family and share your family home.
There may also be additional local by-laws that apply to your business, such as the number of hours in each day or week, and the times of day, that children can be employed. Your local Education Authority will be able to advise you on these.
Insurance for young people
If you employ family members who are under 16, you must ensure that your employer's liability and public liability insurance policies cover young workers and volunteers under the age of 16.
Family employees and health and safety
As an employer, you have a duty of care towards all people who work for you or come onto your business premises.
If you employ younger family members, remember that they may be inexperienced in operating certain types of equipment or facilities, and may be unaware of health and safety hazards. See employing children and young people.
Health and safety legal requirements
Legal provisions for young workers' safety include:
- carrying out a health and safety risk assessment or reviewing existing arrangements before employing them
- assessing psychological factors, eg maturity, awareness, and the need for extra training/supervision
- assessing physiological factors, eg strength, fitness, and the need for additional protection
- providing information to parents/guardians about risks and protection measures
See our section on health and safety made simple for business.
Older workers may need refresher training in health and safety matters or to improve or update their skills. You should also consider vulnerability to exposure from excessive lighting, glare and heat.
All employers must carry out a health and safety risk assessment. Those with five or more employees must record significant findings.
Family employees and tax requirements
Make sure that dividends paid to family members who own shares are clearly distinguished from their pay. Dividends are not usually dealt with through PAYE (Pay As You Earn) system are not subject to National Insurance contributions (NICs).
You may ask for a dispensation from HM Revenue & Customs (HMRC) not to report expenses or benefits that are not taxable.
The dispensation also means that the expenses or benefits do not count as earnings for NIC purposes.See further guidance on exemptions and dispensations.
Regardless of whether or not they are family members, you must operate a PAYE system for all your paid workers - see PAYE and payroll for employers.
You must also keep records on pay and deductions and, for national minimum wage purposes, details of working hours and other appropriate information - see National Minimum Wage and National Living Wage - record keeping.